The EU is the biggest free trade block in the world. Its economic success is unquestionable with countries queuing to become members. In response the

The EU is the biggest free trade block in the world. Its economic success is unquestionable with countries queuing to become members. In response the USA promoted a free trade zone – NAFTA. It does not appear to have had the same success. Using the trade theories studied in class, can you explain why the success of the EU and the difficulties of NAFTA?

 

NAFTA is a free trade agreement between United States, Canada and Mexico. NAFTA consist of North America agreement on Environmental Cooperation and North America on Labour Cooperation. First of them obligates it parties to enforce environmental laws. It aims to reduce air pollution and other environmental threats. Labour Cooperation agreement was set up to fight labour problems with all three countries. Trade theory, which in this case NAFTA, is using the prescriptive theory. It means that free trade was set up and interfered by government. General idea of NAFTA was to raise the access to foreign market and to give the opportunity to export and import globally. The union without trade barriers is more prosperous, as the example of European Union followed by US, Canada and Mexico to allay and become more powerful and provide each of member countries opportunities of growth and wealther. Difficulties of implementing NAFTA are mostly assigned to fear after 09.11.01 when most of the people lost their trust and become more precocious. NAFTA introduction like almost any change has to sacrifice some things in order to gain in a long run. In all of the three countries there are minorities of workers who are against the union, usually we wouldn’t care but those people are also voters and over last decade constituents and especially working class had a great impact on Democratic Party in USA. By being scared that those people wouldn’t vote for a party candidate in the next elections, they decided not to go in a favor of the agreement. Another factor, which had a negative impact on NAFTA agreement, was the fact that first time in the history three huge nations with such a radical differences (not only in development but also in culture and behavior) wanted to merge. The rules of NAFTA agreement were very strict especially for Mexico, which has to achieve all the requirements and make a change in domestic laws. In the case of European Union most of the countries are based on the same rules and are similar in most of the terms. Plus there are much more concentrated and connected. One of the examples to show how differently US people think comparing to Mexican people is that most of them are assured that by this union only Mexicans are going to gain in so called “opening of borders”. This would bring huge amount of people to US seeking for better job opportunities.

 My point is that not only Mexicans are going to gain a trade without barriers but also USA, which is already gaining over $200billion from exports to Mexico is going to benefit from it. Most of ordinary USA people are not aware of this. This is also main difficulty toward union, most of USA seems not to get the idea that this agreement is more of the investment and the nature of investments is that it brings profit in time. The theory we can apply to European Union is Country Similarity Theory – if countries are there, there is a better chance to trade and to become prosperous. In the terms of NAFTA, USA, Mexico and Canada can make use of Factor Endowment theory, which in this case can combine it. In example Mexico can give a labour force and USA and Canada can contribute Capital Technical complexities. By this alliance NAFTA can produce products at low prices and export them globally by gaining higher profits than by working alone.

 

http://www.youtube.com/watch?v=vyq4gzvAeRc&NR=1